Financial Instruments

12 Months Ended

Sep. 30, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

We currently use financial instruments to mitigate commodity price risk and interest rate risk. Our financial instruments do not contain any credit-risk-related or other contingent features that could cause accelerated payments when our financial instruments are in net liability positions.

Commodity Risk Management Activities

Our purchased gas cost adjustment mechanisms essentially insulate our distribution segment from commodity price risk; however, our customers are exposed to the effects of volatile natural gas prices. We manage this exposure through a combination of physical storage, fixed-price forward contracts and financial instruments, primarily over-the-counter swap and option contracts, in an effort to minimize the impact of natural gas price volatility on our customers during the winter heating season.

In jurisdictions where we are permitted to mitigate commodity price risk through financial instruments, the relevant regulatory authorities may establish the level of heating season gas purchases that can be hedged. Our distribution gas supply department is responsible for executing this segment’s commodity risk management activities in conformity with regulatory requirements. Historically, if the regulatory authority does not establish this level, we seek to hedge between 25 and 50 percent of anticipated heating season gas purchases using financial instruments. For the 2020-2021 heating season (generally October through March), in the jurisdictions where we are permitted to utilize financial instruments, we hedged approximately 39 percent, or approximately 15.8 Bcf of the winter flowing gas requirements at a weighted average cost of approximately $2.86 per Mcf. We have not designated these financial instruments as hedges for accounting purposes.

Interest Rate Risk Management Activities

We manage interest rate risk by periodically entering into financial instruments to effectively fix the Treasury yield component of the interest cost associated with anticipated financings.

In fiscal 2021, we entered into forward starting interest rate swaps to effectively fix the Treasury yield component associated with $1.4 billion of planned issuances of senior unsecured notes. These swaps were designated as cash flow hedges at the time the agreements were executed.

In September 2021, we settled forward starting interest rate swaps with a notional amount of $600 million and received $62.2 million. On October 1, 2021, the notes were issued as planned.

Quantitative Disclosures Related to Financial Instruments

The following tables present detailed information concerning the impact of financial instruments on our consolidated balance sheet and statements of comprehensive income.

As of September 30, 2021, our financial instruments were comprised of both long and short commodity positions. A long position is a contract to purchase the commodity, while a short position is a contract to sell the commodity. As of September 30, 2021, we had 23,737 MMcf of net long commodity contracts outstanding. These contracts have not been designated as hedges.

Financial Instruments on the Balance Sheet

The following tables present the fair value and balance sheet classification of our financial instruments as of September 30, 2021 and 2020. As discussed in Note 2 to the consolidated financial statements, we report our financial instruments as risk management assets and liabilities, each of which is classified as current or noncurrent based upon the anticipated settlement date of the underlying financial instrument. The gross amounts of recognized assets and liabilities are netted within our consolidated balance sheets to the extent that we have netting arrangements with the counterparties. However, as of September 30, 2021 and 2020, no gross amounts and no cash collateral were netted within our consolidated balance sheet.



	Balance Sheet Location	Assets		Liabilities
		(In thousands)
September 30, 2021
Designated As Hedges:



Interest rate contracts	Deferred charges and other assets / Deferred credits and other liabilities	$	169,469	$	—
Total		169,469		—
Not Designated As Hedges:
Commodity contracts	Other current assets / Other current liabilities	55,073		(5,269)
Commodity contracts	Deferred charges and other assets / Deferred credits and other liabilities	6,144		—
Total		61,217		(5,269)
Gross / Net Financial Instruments		$	230,686	$	(5,269)



	Balance Sheet Location	Assets		Liabilities
		(In thousands)
September 30, 2020
Designated As Hedges:



Interest rate contracts	Deferred charges and other assets / Deferred credits and other liabilities	$	73,055	$	—
Total		73,055		—
Not Designated As Hedges:
Commodity contracts	Other current assets / Other current liabilities	5,687		(2,015)

Commodity contracts	Deferred charges and other assets / Deferred credits and other liabilities	1,936		—

Total		7,623		(2,015)
Gross / Net Financial Instruments		$	80,678	$	(2,015)

Impact of Financial Instruments on the Statement of Comprehensive Income

Cash Flow Hedges

As discussed above, our distribution segment has interest rate agreements, which we designate as cash flow hedges at the time the agreements were executed. The net loss on settled interest rate agreements reclassified from AOCI into interest charges on our consolidated statements of comprehensive income for the years ended September 30, 2021, 2020 and 2019 was $5.9 million, $5.5 million and $3.9 million.

The following table summarizes the gains and losses arising from hedging transactions that were recognized as a component of other comprehensive income (loss), net of taxes, for the years ended September 30, 2021 and 2020.


	Fiscal Year Ended September 30
	2021		2020
	(In thousands)
Increase in fair value:
Interest rate agreements	$	123,017	$	53,241

Recognition of losses in earnings due to settlements:
Interest rate agreements	4,566		3,647

Total other comprehensive income from hedging, net of tax	$	127,583	$	56,888

Deferred gains (losses) recorded in AOCI associated with our interest rate agreements are recognized in earnings as they are amortized over the terms of the underlying debt instruments. As of September 30, 2021, we had $61.7 million of net realized losses in AOCI associated with our interest rate agreements. The following amounts, net of deferred taxes, represent the expected recognition in earnings of the deferred net losses recorded in AOCI associated with our interest rate agreements, based upon the fair values of these agreements at the date of settlement. The remaining amortization periods for these settled amounts extend through fiscal 2052. However, the table below does not include the expected recognition in earnings of our outstanding interest rate agreements as those financial instruments have not yet settled.


	Interest Rate Agreements
	(In thousands)
2022	$	(2,959)
2023	(2,959)
2024	(2,959)
2025	(2,959)
2026	(2,959)
Thereafter	(46,919)
Total	$	(61,714)

Financial Instruments Not Designated as Hedges

As discussed above, commodity contracts which are used in our distribution segment are not designated as hedges. However, there is no earnings impact on our distribution segment as a result of the use of these financial instruments because the gains and losses arising from the use of these financial instruments are recognized in the consolidated statements of comprehensive income as a component of purchased gas cost when the related costs are recovered through our rates and recognized in revenue. Accordingly, the impact of these financial instruments is excluded from this presentation.